Sumitomo Life to keep mortality margins: report

Core profit margin remained high at 18% in H1 FYE2021.

Japan’s Sumitomo Life is expected to maintain substantial mortality and morbidity margins, supported by its strategic focus on the higher-margin medical and nursery care, products and its substantial in-force business, according to a Fitch Ratings report.

Core profit margin remained high at 18% in H1 FYE2021 versus 17% in FY2020. Annualised new business premiums declined 20% YoY in nine months to FYE2021 as face-to-face activities were curtailed.

In-force premiums also fell but by a more subdued 1% in 9M FYE2021, supported by its in-force business.

The insurer has high exposure to interest-rate risk, therefore prolonged low interest rates and flattening of the Japanese-yen yield curve will be negative for its economic value-based capitalisation. It is trying to lower its duration gap gradually by lengthening the duration of assets despite current low investment yields, the report said.

Sumitomo Life's risky-asset ratio will likely remain higher than Fitch's ratio guidelines for the insurer's rating, partly due to investments in affiliates' shares. It is gradually increasing its exposure to credit risks and domestic equities to enhance investment yields within its capital buffer, Fitch said.